In-Depth Analysis of Concealed Related Party Transactions and Corporate Governance Risks in Tianhai Electronics' IPO

Based on the collected detailed information, I will systematically analyze the issues of concealed related party transactions and corporate governance risks in Tianhai Electronics’ IPO.

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Tianhai Automotive Electronics Group Co., Ltd. (Stock Code: 301631) had its main board IPO application accepted by the Shenzhen Stock Exchange on June 26, 2025, with a planned fundraising amount of RMB 2.46 billion[1]. However, after disclosing its prospectus, the company was reported to the China Securities Regulatory Commission (CSRC) by insiders under their real names, exposing serious issues of concealed related party transactions and corporate governance defects[2].

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Lan Jun (Former Overseas Business Head of Tianhai Electronics, served from 2009 to 2019)

• Lan Jun obtained US citizenship in 2009, while holding a Chinese resident ID card (applied for in October 2008, valid until 2028), which constitutes Sino-US dual nationality[2]
• When Hebi Juxian (employee shareholding platform) was registered in 2017, Lan Jun had already obtained US citizenship. Tianhai Electronics’ management was aware of this but acquiesced to his use of a Chinese resident ID card to participate in the partnership’s registration[2]
• According to China’s Nationality Law, Chinese citizens who settle abroad and voluntarily acquire foreign nationality automatically lose Chinese nationality. Lan Jun’s use of a Chinese ID card for share registration constitutes illegal shareholding with an invalid document[2]
• Lan Jun holds nearly 10% of the capital contribution in Hebi Juxian, corresponding to 0.3436% of Tianhai Electronics’ shares after the IPO, with an estimated market value of nearly RMB 100 million[2]

In September 2025, sponsor China Merchants Securities and Dacheng Law Firm conducted a video interview with Lan Jun, confirming the facts of his dual nationality and share registration using a Chinese ID card, but [2]

Tianhai Electronics purchases over RMB 100 million annually from related party Haichang Intelligent (874519.NQ), with the procurement amount reaching as high as RMB 198 million in 2022[3]

• Wage Payment on Behalf Issue:
  Haichang Intelligent disclosed that it had a related party transaction item of “wage payment on behalf of Tianhai Electronics” in 2023 and 2024, but Tianhai Electronics
  did not mention this at all in its prospectus
  [3]
• Asymmetric Disclosure of Related Party Transactions:
  Haichang Intelligent disclosed related party purchases from Tianhai Electronics in 2023 and 2024, but Tianhai Electronics
  did not disclose any related party sales to Haichang Intelligent
  in its prospectus, resulting in a substantial discrepancy between the two parties’ disclosures[3]
• Low-Level Error in Prospectus:
  Tianhai Electronics’ procurement amount from Haichang Intelligent in 2022 exceeded that of LS Cable, the 5th ranked supplier among its top five suppliers, but Haichang Intelligent
  was not included in the top five suppliers list
  , which is an obvious compilation error[3]

• TENA (Tianhai Electric North America, Inc.) was once Tianhai Electronics’ business window in North America. Lan Jun registered TENA as a US citizen and served as its president[2]
• In December 2021, Tianhai Electronics sold TENA’s business and assets to AE Company (Angstrom Electric, LLC)

• AE Company has been in arrears with a huge amount of accounts payable. The specific bad debt provision for TENA was RMB 87.44 million (book balance of RMB 116 million), and together with Tianhai Europe, the total amount is nearly RMB 128 million. These arrears
  were basically not recovered
  from the end of 2022 to the end of 2024[2]
• In 2022 and 2023, Tianhai Electronics still purchased products such as sheaths from TENA worth RMB 583.5 million and RMB 840,000 respectively, while selling products worth RMB 730.2 million and RMB 226,000 to TENA.
  Continuous transactions were still conducted
  despite TENA’s huge arrears, which raises suspicion of undisclosed interest disputes[2]

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Issue Type	Specific Performance	Severity
Incomplete Disclosure of Shareholding Structure	Failed to disclose Lan Jun’s dual nationality and shareholding compliance risks	Extremely High
Omission of Related Party Transactions	Wage payment on behalf issue was not disclosed at all	High
Data Compilation Error	Discrepancy between procurement amount from Haichang Intelligent and top five suppliers data	Medium
False Inquiry Response	Failed to disclose Lan Jun’s capital reduction in 2024 in the first-round inquiry response	High

Liu Fengzhou, Secretary of the Board of Directors of Tianhai Electronics, was aware of the consequences of Lan Jun’s dual nationality and illegal shareholding, and once proposed that Lan Jun exit his shareholding at a price of RMB 19.5 per share to , but the company still did not disclose this information in the prospectus[2]

As the sponsor, China Merchants Securities, after verifying Lan Jun’s illegal situation, , but instead continued to conceal relevant information, failing to fulfill its due diligence obligations[2]

• In 2024, Tianhai Electronics’ total direct labor expenditure was RMB 1.637 billion, of which formal employees’ compensation was RMB 1.033 billion, and labor outsourcing costs
  reached as high as RMB 604 million
  , with the outsourcing cost scale approaching 60% of formal employees’ compensation[4]
• The number of production staff increased significantly from 7,556 in 2022 to 14,608 in mid-2025,
  nearly doubling in just a few years
  [4]

Online feedback shows that Tianhai Electronics’ dispatched workers face the following issues[4]:

• Do not enjoy statutory benefits such as social security and housing provident fund
• Relatively low wages; some netizens reported that they only received RMB 2,200 after working 22 nights of overtime production at Chongqing Tianhai Electronics
• Poor working conditions; the meal quality for night-shift workers is bad
• There are rumors of sudden employee death due to high-intensity work

This market competitiveness built on low regional labor costs is prone to path dependence, which not only constitutes a major weakness in the sustainability of the business model, but also may transform into[4]:

• Reputational risk
• Regulatory risk
• Potential litigation risk
• Operational disruption, compensation expenses, and brand damage

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Indicator	2022	2023	2024	H1 2025
Gross Profit Margin	16.26%	15.63%	14.88%	14.43%
Gross Profit Margin of Wiring Harness Business	12.1%	-	10.3%	-
Gross Profit Margin of Connector Business	28.5%	-	26.7%	-

The gross profit margin shows a “three consecutive declines” trend, reflecting the company’s weak position in the industrial chain[1][4]

As of the end of H1 2025, the company’s net accounts receivable

, accounting for nearly half of its total assets, which is even higher than the company’s net assets, directly bringing cash flow pressure[3]

The core direction of the company’s planned IPO fundraising is the “High-Voltage Wiring Harness Intelligent Manufacturing Project”, but the current capacity utilization is low. The fundraising investment decision is in stark contrast to the current operating data, which may involve the capital risk of “burning money for scale”[4]

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In the second-round review inquiry letter, the Shenzhen Stock Exchange focused on the following five aspects[5]:

1. Business, industry, and operating performance
2. Related party procurement from Haichang Intelligent
3. Operating income
4. Operating costs
5. Gross profit margin

The issues exposed in Tianhai Electronics’ IPO are not just simple information disclosure flaws, but involve[2][3][4]:

• Violation of the basic requirement for information disclosure authenticity under the Securities Law
• Alleged violation of relevant provisions of the Nationality Law
• Sponsor’s failure to perform due diligence
• Major defects in corporate governance structure
• Severe risks in ESG

If these issues cannot be effectively rectified and explained, they may have a material impact on its IPO process, and at the same time pose significant risks to the protection of investor rights and interests.

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[1] Sina Finance - Tianhai Electronics’ IPO: Suspicious Self-Pickup Sales, Poor Reputation for Labor Outsourcing (https://q.stock.sohu.com/cn/news.html?textId=967141639&type=120&tab=200&code=cn_301631&date=2026/0111)

[2] Sina Finance - Tianhai Electronics Reported for IPO: Prospectus Fails to Disclose Former Overseas Head’s Sino-US Dual Nationality (https://finance.sina.com.cn/stock/stockzmt/2025-12-12/doc-inhanyzt5412042.shtml)

[3] Sina Finance - Tianhai Electronics’ IPO: Should It Clarify the Concealed Related Party “Wage Payment on Behalf” Issue? (https://finance.sina.com.cn/stock/marketresearch/2026-01-13/doc-inhhchmx6164204.shtml)

[4] NetEase News - Tianhai Electronics’ IPO: Suspicious Self-Pickup Sales, Poor Reputation for Labor Outsourcing (https://www.163.com/dy/article/KJ17OIJO0519RGMV.html)

[5] Beijing Business Daily - Tianhai Electronics Discloses Second-Round Review Inquiry Response for Main Board IPO (https://finance.sina.com.cn/jjxw/2025-12-22/doc-inhcsvuy8998872.shtml)